CHAPTER 1 - TRUE/FALSE

Question 1

Cost-volume-profit analysis focuses on the break-even point and the impact of changes in fixed costs and price.

Answer 1

True

Question 2

The break-even point is the point where total costs equal sales revenues

Answer 2

True

Question 3

The term net income is used to mean operating income before income taxes.

Answer 3

False

Question 4

To earn a target profit, total costs plus the amount of target profit must equal total sales revenue

Answer 4

True

Question 5

Units to earn target profit equal total fixed costs plus target profit divided by the contribution margin ratio.

Answer 5

False

Question 6

Sales revenue to earn target profits equals total fixed costs plus target profit divided by the contribution margin.

Answer 6

False

Question 7

Income taxes are generally calculated as a percentage of income.

Answer 7

True

Question 8

When using either the equation or the contribution margin approach, the after-tax profit must be converted to a beforetax
profit target.

Answer 8

True

Question 9

In multiple-product analysis, the break-even units for each product will change as the sales mix changes.

Answer 9

True

Question 10

Increased sales of high contribution margin products increase the break-even point.

Answer 10

False

Question 11

Increases in sales of low contribution margin products decrease the break-even point.

Answer 11

False

Question 12

In a CVP graph, the intersection of the total costs line and the total sales revenue line is the break-even point in units.

Answer 12

True

Question 13

The profit-volume graph depicts the relationship among cost, volume, and profit.

Answer 13

False

Question 14

The cost-volume-profit graph portrays the relationship between profits and sales volume.

Answer 14

False

Question 15

CVP analysis is a short-run decision-making tool since some costs are fixed.

Answer 15

True

Question 16

Multiple-product break-even analysis requires a constant sales mix, which is difficult to predict with certainty.

Answer 16

True

Question 17

Uncertainty regarding costs, prices, and sales mix affect the break-even point.

Answer 17

True

Question 18

The operating leverage shows how far the company’s actual sales or units are from the break-even point.

Answer 18

False

Question 19

Sensitivity analysis is a what-if technique that examines the impact of changes in assumptions.

Answer 19

True

Question 20

Under ABC, cost drivers are separated into unit-based and non-unit-based drivers.

Answer 20

True